How India's Middle Class is Shielding Stock Markets from US Tariffs

India's stock markets have remained surprisingly stable despite new tariffs imposed by the United States. While foreign investors have been pulling out their money, it's the country's growing middle class that has stepped in, keeping the markets afloat and demonstrating a new level of domestic financial strength.

The Rise of the Indian Investor 📈

For years, foreign capital played a dominant role in India's stock market. However, a significant shift has occurred. According to a mutual fund manager at Kotak Mahindra Asset Management, foreign ownership in the market has dropped from 24% to about 16% over the last decade. This decline has been offset by a surge in domestic investment.

Instead of following global trends, many Indian investors, particularly from the middle class, are now making automated, monthly contributions to mutual funds. This strategy of "domestic financialisation" is a shift from traditional savings, like real estate and physical gold, to financial assets like stocks. The number of individual brokerage accounts has also exploded, reaching over 200 million, or one for every seven Indians, with huge potential for further growth.

Why Foreign Capital is Leaving 📉

The exodus of foreign capital from India's markets is largely tied to a few factors:

China's Recovery: Chinese stock markets, particularly Hong Kong's, have seen a significant recovery, attracting foreign money seeking new opportunities.

Trump's Tariffs: Tariffs imposed by the Trump administration, in part as a penalty for India's purchase of Russian oil, have hurt Indian exporters. This has made the country a less appealing manufacturing alternative to China and raised concerns about Indo-US relations.

These tariffs are hitting Indian exporters hard, threatening jobs and making goods less competitive in the US market. The Indian government has taken steps to mitigate the impact, such as simplifying and reducing GST tax rates to encourage domestic spending and support businesses.

A Resilient Market 🛡️

Despite these challenges, India's two main stock indices have grown by 10% in the last six months. This resilience is largely because the largest publicly listed companies are not heavily reliant on exports. With a strong and growing domestic investor base, India's stock market is proving it can stand tall on its own, a testament to the confidence and financial power of its middle class.